The Impact of the 1982 Peso Devaluations on Maquiladora Profits

Alberto Davila

Abstract

The primary purpose of this article is to study the effect the February and August 1982 peso devaluations had on the profitability of U.S. maquiladora investments by using stock-price returns data: stock prices are assumed to have captured the market's perception of how the peso shocks affected the value (and thus the expected future cash flows) of American maquiladora firms in 1982. This approach eliminates the need to trace all the likely short-term and long-term effects the peso changes had on the profitability of maquiladora operations. More importantly, it can be used to estimate the extent by which the wealth of maquiladora owners increased or decreased following the peso devaluations.

This approach has been employed extensively in the finance literature to study the impact of exogenous shocks on the value of publicly-held firms, and, in particular, it has been recently used to study the stock market response to Mexico's economic crisis in 1982. Smirlock and Kaufold (1987) review some of this research and show that the stock prices of U.S. banks with financial exposure to Mexico were negatively affected by the 1982 peso devaluations.

A second purpose of this study is to extend Smirlock and Kaufold's research by focusing on the stock values of nonfinancial firms after the February and August peso shocks. A working hypothesis is that the devaluations increased the value of U.S. nonfinancial firms with investments in Mexico.